If the Hazard Rate Is $\lambda = 0.2$ , the Risk-Free Rate Is Zero, Then If the Price

question 14

Multiple Choice

If the hazard rate is $\lambda = 0.2$ , the risk-free rate is zero, then if the price of a one-year $100 face value discount bond is $85, then what is the expected recovery rate $\phi$ on default of the bond?

• A) 17%
• B) 24%
• C) 40%
• D) 55%